This week I read to page 44 of the Bitcoin Standard. I wrote down some terms In didn’t know and figured out what they mean.
List of Terms I was Unfamiliar With:
Barter; exchange (goods or services) for other goods or services without using money. Only practical in small circles.
Quintessential; representing a perfect or typical example of something.
Diagram Showing how transactions are verified on the Bitcoin ledger.
STEPS
1. Wallet
A user stores their Bitcoin in a digital wallet, which holds the private keys needed to authorize spending. The wallet does not hold physical coins, but access to Bitcoin recorded on the blockchain.
2. Transaction
When the user sends Bitcoin, the wallet creates a transaction showing the sender, receiver, and amount. This transaction is digitally signed to prove it is legitimate.
3. Broadcast
The signed transaction is broadcast to the Bitcoin network. It is shared with thousands of computers (nodes) around the world.
4. Pending Transactions (Mempool)
The transaction enters a waiting area called the memepool, where unconfirmed transactions are temporarily stored until they are verified.
5. Miners / Validators
Miners collect pending transactions and check that they are valid (no double-spending, correct signatures, sufficient balance).
6. Proof of Work / Mining Puzzle
Miners compete to solve a complex mathematical puzzle using computing power. The first miner to solve it earns the right to add the next block.
7. Block
Verified transactions are grouped together into a block. The block includes a cryptographic link to the previous block, forming a secure chain.
8. Confirmations
Once the block is added, the transaction receives its first confirmation. Each new block added afterward increases the number of confirmations, making the transaction more secure.
9. Ledger (Blockchain)
The updated block is permanently recorded on the public blockchain ledger. Every node updates its copy, ensuring transparency, accuracy, and security.